Congressional Democrats following Karl Marx

I have always felt that Dick Morris was a slime ball. No matter how much a person hates his boss (in Morris’ case, former president Bill Clinton and wife Hillary), you don’t stab them in the back after you move on to other things. That said, Morris apparently has moved on from the Clintons and turned his talents, whatever they are, to addressing the oil crisis.

Morris' story in today’s Newsmax magazine provokes two questions: Are we looking at another bust after the manner of the S & Ls, sub-prime lending practices and the housing market? And secondly, how much influence do oil speculators have on this Congress or the next as it tries to address America’s needs?

For instance, if Obama becomes president and former Clinton administration treasury secretary Robert Rubin (currently on the board of Goldman Sachs) is brought back into the cabinet, do we really think he would “do what’s right?” Or would he protect fellow investors from losing their shirts and blouses?

Would whoever advises a McCain presidency do the right thing? We can only hope and wonder where Ronald Reagan is when we need him.

For those who don’t have time to read Morris' column, the oil crisis is a combination of:

• the real supply and demand, which is current world reserves v. demand for oil by the U.S., China and India

• two artificial supply and demand situations, they being the amount of oil OPEC makes available and the demand created by Wall Street speculators

• failure on the part of this country to develop its own oil reserves and the associated refining capacity to turn oil into gasoline. This is primarily the fault of Congress, which put much of America’s oil reserves off limits to oil companies, thus creating a situation where it cheaper for them to buy oil than fight through prohibitions in this country

• complacency on the part of oil companies to do much beyond “keeping on keeping on.” They are making billions of dollars already. Why spend more when there are so many obstacles in the way?

• failure on the part of Congress to authorize development of alternative energy resources — primarily nuclear power plants that generate electricity. This effort alone would signal America’s willingness to address its own needs. It would also prompt OPEC to realize the folly of holding this country hostage to Middle Eastern oil

It doesn’t take a Rhodes Scholar to figure out where the problem is. It isn’t with oil companies or entrepreneurs who would jump at the chance to make a buck. The fault lies with Congressional Democrats (as opposed to Democrat voters who may not have a clue who pulls their leaders’ strings) and their leftist supporters who envision an America totally dependant on government for everything.

Then, and only then, would income be distributed equally. Then, and only then, would the needs of the masses be met.

Karl Marx couldn’t have said it better.

I’m Jere Joiner and I digress. Here is Morris’ column:

Gas prices are the first important issue in the 2008 elections. But both parties have been pathetic in their solutions and, one suspects, in their understanding of what is going on.

Democrats call for windfall profits taxes. Bad idea. How can you get oil companies to explore and drill if you tax away their profits? Republicans focus on a gas tax “holiday," an 18 cent palliative to gas prices that now top $4.50.

Fadel Gheit, managing director of oil and gas research for Oppenheimer and Co. and Jim Norman, author of the book "The Oil Card," coming out next month, say that speculation is responsible for a huge part of the run-up in prices.

The growing demand for oil by India and China and the instability of oil supplies certainly account for much of the increase. But the recent spike, they say, is equally due to the weakness of the dollar and massive speculation.

They argue that oil prices are, indeed, determined by supply and demand — not only the supply and demand for oil, but also the supply and demand for oil futures. (Oil futures are a commitment to buy 1,000 barrels of oil at a certain date at a certain price.)

Formerly, most of the investments in oil futures came from energy companies. The federal Commodities Futures Trading Commission (CFTC) sharply limited investments by those outside the business, to prevent precisely the kind of speculation now gripping the market.

But when the stock market slowed down in 2000–2002, outside investors decided to speculate in oil futures. The new players were institutional investors like corporate and government pension funds, sovereign wealth funds, university endowments and other investors, guided by brokerage firms like Morgan, Stanley, and Goldman, Sachs.

To avoid the CFTC caps, these investors moved their operations to London, setting up the International Commodities Exchange (ICE). Now, they can buy all the oil futures they want.

Michael W. Masters, of Masters Capital Management, told Congress that the volume of investment in commodities futures soared from $13 billion at the end of 2003 to $260 billion in March of 2008.

After a while, the CFTC rescinded its limits on how much speculators could buy as long as they went through special “swap” desks at the major brokerage houses.

You can buy oil futures for only 5 percent down on margin, a bargain considering the 50 percent margin requirement for stock market equity investments. Because the margin requirement on oil futures rises as the due date approaches, few investors actually end up buying the oil, they just roll over their investments.

So the willingness of sellers to unload their oil futures and buyers to acquire them sets up its own market of supply and demand which has more to do with determining the actual price of oil than even the global demand and supply for the product itself.

Masters told Congress, on May 20 of this year: “commodities futures prices are the benchmark for the prices of actual physical commodities, so when index speculators drive futures prices higher, the effects are felt immediately in spot prices and the real economy. So there is a direct link between commodities futures prices and the prices your constituents are paying for essential goods.”

Gheit and Norman suggest that the CFTC regulate the domestic oil futures market (NYMEX) and the participation of U.S. companies in the ICE, restoring the caps on the amount of oil futures speculators can buy. Gheit also urges raising margin requirements for them.

Both worry that the oil futures bubble is going to burst and cost a lot of investors — particularly pension funds who channel their investments through the swap desks of the brokerage houses. We don’t need another subprime or S&L crisis on our hands right now.

The Senate recently tried to force CFTC regulation of all commodities speculators but the bill was loaded down with a windfall profits tax so the Republicans killed it.

McCain needs to get with this program. In his town hall meeting in New York City last Thursday night, he attacked speculators for driving up oil prices but didn’t propose remedies or really explain the problem. Americans will pay close attention if he does. For McCain this is the issue and now is the time to use it.